CONTENTS
Preface = xvi
Part One : The Basics
Chapter 1 Introduction = 3
1-1 The Risk-Return Approach to Analyzing Investments = 4
1-2 An Overview of the Investment Alternatives = 6
1-3 Investment Management Strategies = 6
1-4 Investments Work as a Career = 7
Chapter 2 Securities = 9
2-1 Bonds Are Securities That Are Essentially IOUs = 10
2-2 Default-Free U.S. Government Securities = 11
2-3 Corporate Bond = 15
2-4 Municipal Bonds = 18
2-5 New Forms of Bonds = 19
2-6 Asset-Backed Securities = 21
2-7 Money Market Securities = 23
2-8 Common Stock = 26
2-9 Preferred Stock = 31
2-10 Convertible Securities = 34
2-11 Summary = 35
Key Words Ouestions and Problems Further References = 37
Chapter 3 Risk and Return = 42
3-1 The Investor's Goals = 43
3-2 The Holding Period = 44
3-3 The Rate of Return = 46
3-4 Probability and the Holding Period Return = 48
3-5 Measuring an Investment's Total Risk = 53
3-6 Making Investment Decisions Based on E(r) and Risk Statistics = 55
3-7 Empirical Evidence of the Risk-Return Relationship = 58
3-8 The Trade-off between Risk and Retur = 61
Key Words Ouestins and Problems Further Refereences Apendix = 63
Part Two : The Setting
Chapter 4 Securities Markets = 73
4-1 Primary Markets Are Made by Investment Bankers = 74
4-2 The Secondary Markets at the Organized Security Exchanges = 82
4-3 Secondary Markets-Over-the-Counter Markets = 91
4-4 Full-Service or Discount Broker Services? = 95
4-5 Orders for the Broker = 98
4-6 Margin Accounts = 100
4-7 Secondary Markets-Competing Market Makers Drive Down Commission Rates = 103
4-8 Summary = 107
Key Words Questions and Problems Further References Project = 108
Chapter 5 Regulation of Securities markets = 114
5-1 Why Securities Laws Are Needed = 115
5-2 Securities Regulations from the 1930s = 121
5-3 Securities Regulations Passed in 1940 and Later = 132
5-4 Law Enforcement = 136
5-5 Summary = 137
Key Words Questions and Problems Further References Appendix = 137
Chapter 6 Taxes = 145
6-1 Federal Personal Income Tax = 146
6-2 Estate Taxes and Gift Taxes = 162
6-3 Federal Corporate Income Taxes = 164
6-4 Tax-Exempt Investors = 168
6-5 Summary = 170
Key Words Questions and Problems Further References = 171
Part Three : Introduction to Financial Analysis
Chapter 7 Sources of Financial Information = 177
7-1 World Affairs = 178
7-2 National Affairs = 179
7-3 Investment Information Services = 183
7-4 Brokerage Houses = 191
7-5 The Issuers of Securities = 192
7-6 Professional Journals = 193
7-7 Information about Professionally Managed Portfolios = 196
7-8 Historical Data Files for Computers = 197
7-9 Up-to-the-Minute Price Quotations from Security Markets = 199
7-10 Software for Computers = 200
7-11 Time-Sharing Services = 203
7-12 Summary = 204
Questions and Problems Further References Case = 204
Chapter 8 Analysis of Financial Statements = 211
8-1 The Balance Sheet = 212
8-2 The Income Statement = 213
8-3 Common-Sized Financial Statements = 214
8-4 Meaningful and Relevant Financial Ratios = 216
8-5 Computation and Interpretation of Financial Ratios = 217
8-6 Standards of Comparison Aid Interpretation of Ratios = 236
8-7 Caveats about Ratio Analysis = 237
8-8 Summary = 238
Key Words m Questions and Problems Further References = 239
Chapter 9 Market Averages and Indexes = 245
9-1 Various Averages and indexes Exist = 246
9-2 Index Construction = 249
9-3 Comparison of Two Stock Market Indexes = 250
9-4 Maintenance Problems with Security Market Indexes = 254
9-5 Contrasting Different Market Indicators = 255
9-6 Summary = 264
Key Words Questions and Problems Further References Appendix = 266
Part Four : The Factors That Contribute to Total Risk
Chapter 10 The Interest Rate Risk Factor = 275
10-1 Money Has Time Value = 276
10-2 The Present Value of Future Dollars = 277
10-3 The Present Value of the Cash Flows from an Annuity = 279
10-4 Present Values Are Determined by Interest Rates = 281
10-5 The Duration of an Investment = 282
10-6 U.S. Treasury Bonds = 284
10-7 Corporate Bonds = 287
10-8 Municipal Bonds = 288
10-9 Stocks = 289
10-10 Diversifiale and Undiversifiable Interest Kate Risk = 291
10-11 Summary = 292
Key Words Questions and Problems Further References Cases = 293
Chapter 11 The Default Risk Factor = 297
11-1 The Default Risk Factor = 298
11-2 Bankruptcy Law = 299
11-3 The Upside and the Downside = 303
11-4 Quality Ratings for Bonds and Stocks = 304
11-5 Default Risk and Return = 308
11-6 Diversifiable and Undiversifiable Default Risk = 309
11-7 Summary = 311
Key Words m Questions and Problems Further References Cases = 312
Chapter 12 The Management Risk Factor = 319
12-1 Capable Managers Insure Against "Acts of God" = 320
12-2 Management Is Responsible for Product Obsolescence = 321
12-3 Management Is Responsible for Sales Maintenance = 322
12-4 Management Errors-An Infinite Variety = 324
12-5 Guidelines for Evaluating Management = 327
12-6 Agency Theory and the Investor = 331
12-7 Diversifiable and Undiversifiable Management Risk = 333
12-8 Summary = 334
Key Words Questions and Problems Further References = 335
Chapter 13 The Market Risk Factor = 340
13-1 The Market Risk Factor = 341
13-2 Good Market Timing Means Buying at Lows and Selling at Highs = 347
13-3 Analysis of Recessions = 349
13-4 Changing Market Interest Rates Move the Bond Prices = 354
13-5 Diversifiable and Undiversifiable Market Risk = 358
13-6 Summary = 358
Key Words Questions and Problems Further References = 359
Chapter 14 The Purchasing-Power Risk Factor and Other Risk Factors = 365
14-1 The Purchasing-Power Risk Factor = 366
14-2 Empirical Rates of Return and Inflation Rates = 370
14-3 Diversifiable and Undiversifiable Purchasing-Power Risk = 371
14-4 Conclusions about the Purchasing-Power Risk Factor = 374
14-5 The Liquidity Risk Factor = 376
14-6 Political Risk Factors = 378
14-7 The Call Risk Factor = 379
14-8 The Convertibility Risk Factor = 381
14-9 Summary = 381
Key Words Questions Problems Further References Cases = 381
Part Five : Valuation Theory
Chapter 15 Short Positions, Hedges, and Arbitrage = 389
15-1 Long and Short Positions = 390
15-2 Hedged Positions = 394
15-3 Arbitrage = 396
15-4 Differing Motivations for Selling Short = 398
15-5 Summary = 400
Key Word, Questions acid Problems Further References = 400
Chapter 16 Arbitrage Pricing Theory(APT) = 406
16-1 APT's Underlying Assumptions = 407
16-2 Arbitrage and the Law of One Price = 407
16-3 Arbitrage Pricing Theory for a Single Risk Factor = 408
16-4 APT with Two Risk Factors = 412
16-5 APT with k Factors = 416
16-6 The Components of Total Risk in the APT Model = 419
16-7 Why the Diversifiable Risk Components Add Up to Zero = 420
16-8 Present Values with APT = 421
16-9 Summary = 422
Key Words Questions and Problems Further References = 423
Chapter 17 Price ＝ ? ＝ Value = 428
17-1 Value versus Price Comparisons 429
17-2 Present Value Model = 430
17-3 Valuation and Investment Procedure = 431
17-4 Cootner's Price-Value Interaction Model = 432
17-5 Equilibrium Prices Fluctuating Efficiently = 435
17-6 Passive or Aggressive Investment Management? = 437
17-7 Summary = 440
Key Words Questions and Problems Further References = 440
Part Six : Security Analysis
Chapter 18 Bond Analysis = 447
18-1 A Bond Is Worth Its Present Value = 448
18-2 Quality Ratings for Corporate Bonds = 451
18-3 Summary = 467
Key Words Questions and Problems Further References = 468
Chapter 19 Bond Selection = 472
19-1 Measuring Bond Yields = 474
19-2 Measuring Duration = 483
19-3 Bond Investing = 489
19-4 Aggressive Bond Trading = 493
19-5 The Term Structure of Interest Rates = 497
19-6 Forecasting Market Interest Rates = 503
19-7 Riding the Yield Curve = 504
19-8 Speculating on Quality Ratings Changes = 504
19-9 Summary = 506
Key Words Questions and Problems Further References Term Project = 506
Chapter 20 Common Stock Analysis = 510
20-1 Valuing a Share of Common Stock = 511
20-2 Timing = 528
20-3 Summary = 532
Key Words Questions and Problems Further References = 534
Chapter 21 Analyzing Earnings = 539
21-1 Share Valuation = 540
21-2 Economic Earnings and Accounting Earnings = 541
21-3 Reported EPS = 550
21-4 Adjusting the Income Statement = 552
21-5 Fe: -casting EPS = 553
21-6 Summary = 554
Key Words n Questions and Problems Further References = 554
Chapter 22 Industry Analysis = 558
22-1 Industrial Organization = 559
22-2 Analyzing Industries = 562
22-3 Product Life Cycle Theory = 570
22-4 Summary = 573
Key Words Question, and Problems Further References = 573
Part Seven The Behavior of Stock Prices
Chapter 23 Technical Analysis = 579
23-1 The Core Concepts of Technical Analysis = 580
23-2 The Dow Theory = 583
23-3 Support Areas and Resistance Areas = 585
23-4 The Three Main Types of Charts = 588
23-5 The Head and Shoulders Top Patiern and Trading Volume = 588
23-6 Point-and-Figure Charts = 589
23-7 Theories of Contrary Opinion = 592
23-8 Breadth of Market = 594
23-9 Moving-Average Analysis = 597
23-10 Conclusions = 598
23-11 Summary = 598
Key Words, Questions and Problems Further References = 599
Chapter 24 Security Price Movements = 602
24-1 Technical Analysis Has Its Advantages = 603
24-2 The Market Mechanism That Determines Stock Prices = 604
24-3 Technical Analysis and Efficient Markets = 606
24-4 Conclusions = 626
24-5 Summary = 626
Key Words Questions and Problems Further References = 627
Part Eight : Other Investments
Chapter 25 Options = 633
25-1 The Put and Call Options = 634
25-2 The People, the Prices, and the Markets = 635
25-3 Gain-Loss Illustrations for Calls = 638
25-4 The Determinants of All Options' Premiums = 640
25-5 The Determinants of Call Premiums = 642
25-6 Put Options = 644
25-7 Whether to Buy an Option or Take a Position Directly in the Underlying Security = 646
25-8 Index Options = 649
25-9 Warrants Are Similar to Call Options = 652
25-10 Summary = 654
Key Words Questions and Problems Further References Appendix = 655
Chapter 26 Commodity Futures = 664
26-1 Cash Markets and Futures Exchanges = 666
26-2 Transactions at a Commodities Exchange = 667
26-3 The Activities in a Commodities Exchange = 671
26-4 Summary = 676
Key Words Questions and Problems Further References = 677
Chapter 27 Financial Futures Contracts = 681
27-1 Financial Futures Defined = 682
27-2 The Financial Futures Contract on S&P 500 Index = 684
27-3 Financial Futures on Treasury Securities = 692
27-4 T-Bond and T-Note Futures Contracts = 698
27-5 Summary = 701
Key Words Questions and Problems Further References = 703
Chapter 28 Investing in Real Assets = 706
28-1 The Analysis of Real Assets = 707
28-2 Monetary Assets and Real Assets = 708
28-3 Real Estate = 709
28-4 Precious Stones = 713
28-5 Precious Metals = 715
28-6 Art Objects = 719
28-7 Collectibles = 720
28-8 Summary = 723
Key Words Questions and Problems Further References = 723
Part Nine : Portfolio Management
Chapter 29 Protfolio Analysis = 729
29-1 Dominant Assets and Efficient Portfolios = 730
29-2 Simple Diversification = 732
29-3 Diversification across Industries = 733
29-4 Superfluous Diversification = 734
29-5 Markowitz Diversification = 735
29-6 The Efficient Frontier = 746
29-7 Summary = 748
Key Words Questions and Problems Further References = 748
Chapter 30 Capital Market Theory = 753
30-1 The Efficient Frontier = 754
30-2 The Capital Market Line (CML) = 755
30-3 An Asset's Characteristic Regression Line (CRL) = 759
30-4 The Capital Asset Pricing Model (CA-PM) = 766
30-5 Summary = 770
Key Words Questions and Problems Further References = 771
Chapter 31 Investing Internationally = 774
31-1 International Diversification = 775
31-2 Dealing with Foreign Exchange Rates that Vary = 780
31-3 Summary = 782
Key Words Questions and Problems Further References = 785
Chapter 32 Evaluationg Investment Managers' Performance = 787
32-1 Introduction to Mutual Funds = 789
32-2 Sharpe's Investment Performance Index = 794
32-3 Treynor's Investment Performance Measure = 798
32-4 Summary and Conclusions = 804
Key Words Questions and Problems Further References = 804
Part Ten : Appendixes
Appendix A The Chartered Financial Analyst (CFA) Designation = 808
Appendix B Answers to Multiple Choice Questions = 811
Glossary = 814
Indexes
Name Index = 1-1
Subject Index = 1-7
